As previously reported, in October 2015, the U.S. Bureau of Land Management (BLM) issued a non-binding guidance letter (October guidance) opining that the Cadiz Water Project’s proposed use of a railroad right-of-way for its water pipeline did not originate from a railroad purpose and would therefore be considered outside the scope of the original railroad right-of-way grant and require a new federal permit. The October guidance contradicted a February 2009 opinion, issued in response to an inquiry by Senator Dianne Feinstein (D-CA), which concluded that Cadiz’ proposal to convey water via a pipeline in the Arizona & California Railroad right-of-way did not require any federal permitting.

We believe that the October guidance – the first of its kind by the BLM – is contrary to law and decades of historical practice, which has allowed and, in some instances encouraged, the use of railroad right-of-ways for longitudinal infrastructure, including water pipelines.

To better understand the nature of BLM’s decision-making process and the departure from historical practice, the Company filed Freedom of Information Act (FOIA) requests with the BLM earlier this year to obtain federal documents pertinent to its October guidance. As part of the FOIA response, the BLM delivered several emails, which reveal that BLM’s employees, who directly participated in the review of Cadiz’ pipeline use, lacked objectivity and appeared to be predisposed to find that the use is outside the scope of the right-of-way. The emails also communicated information relevant to BLM’s assessment of the Project’s proposed use to outside parties prior to this information being shared with the Company.

Upon receipt of the e-mails, we reported their content to BLM’s California Office State Director and, at the State Director’s request, provided him copies. We were subsequently informed by the State Director that he referred the matter to the U.S. Department of the Interior’s Office of Inspector General for evaluation.

On Friday, August 5, 2016, we learned that the U.S. House of Representatives Oversight & Government Reform Committee (Committee) also initiated an investigation into BLM’s conduct. The Committee has sent letters to BLM and third parties requesting additional material regarding the decision-making process and BLM’s policy pertaining to third party use of railroad right-of-ways. The letters are available on the Committee’s website.